The Trans-Pacific Partnership: Warnings From NAFTA

January 29, 2014

Dean Baker

With the New Year the corporate lobbyists and the Obama administration are stepping up their drive for passage of the Trans-Pacific Partnership (TPP), the new trade deal being negotiated in secret by the United States and eleven countries in the Pacific region. The key at the moment is Congressional approval of fast-track authority. This would give any agreement a straight up or down vote on an accelerated timetable.

Fast-track authority would virtually guarantee passage since members would face intense pressure from corporate contributors and the media, in both the news and opinion sections, to support the deal. Failure to support a deal would mean that a member would be labeled a protectionist Neanderthal (name-calling is standard fare in Washington when pushing for trade deals) in addition to being badly under-funded in their re-election campaign.

As has frequently been noted, the TPP is not really about trade. The tariff barriers and quotas between the TPP countries are already low in most cases. Rather the point of the deal is to put in place a structure of regulations that will be more friendly to the large corporations who are in many cases directly part of the negotiating process.

The provisions in the agreement will overrule measures passed by national, state, and local legislative bodies, in effect stripping democratically elected officials of much of their authority. Since most of the text is still secret we can only speculate on what the final agreement will include.

The leaked chapter on intellectual property indicated that it would likely mean sharply higher drug prices in many countries since the TPP would strengthen patents and related restrictions on selling drugs. The final agreement may limit the ability of governments to regulate fracking. In the United States, federal law prohibits state and local governments from requiring disclosure of the chemicals used in the fracking process. This makes it far more difficult to detect pollution of ground water and drinking water. The TPP may include a similar provision.

It may also include restrictions on the ability of governments to regulate the financial sector. This could allow banks to skirt rules in Dodd-Frank or comparable financial reform bills approved by other countries.

It is likely that many of the provisions in the final agreement would be highly unpopular if they were put up for a vote, but the whole point of getting the deal as a fast-tracked take it or leave it deal is to prevent individual provisions from ever being considered. And there will be enormous pressure to take it.

That is what we saw with the full court press used to pass NAFTA. And twenty years later the media and the economics profession are still covering up on the impact of NAFTA in order to avoid embarrassment to the deal’s supporters. For example the Washington Post recently wrote about Mexico’s growing middle class which it attributed in part to NAFTA. This is in spite of the fact that Mexico had the second slowest growth on any country in Latin America since the passage of NAFTA.

The Washington Post also bizarrely asserted in a 2007 editorial attacking presidential candidates for criticizing NAFTA that Mexico’s GDP had quadrupled since 1988. In fact, its growth was just 83 percent.

The economics profession, or at least pillars such as the World Bank, has also been prepared to make up numbers to make it appear NAFTA was a success. On the tenth anniversary of NAFTA the World Bank published a report touting the benefits of NAFTA to both the United States and Mexico.

One of the key claims in this report was that NAFTA had produced faster growth in Mexico, leading to a convergence in living standards between Mexico and the United States. It is easy to see that this was not true. According to IMF data, Mexico’s per capita GDP rose by 29.1 percent from 1993 to 2002, the last year in the study. By contrast, per capita GDP had risen by 44.2 percent in the United States over the same period.

Typically we would expect that a developing country would have more rapid growth than a rich country like the United States, so it would not be clear whether any convergence was due to NAFTA or would have happened regardless. However since growth in the U.S. outpaced growth in Mexico there was no convergence to argue over, the gap in incomes became larger.

Nonetheless, the World Bank’s report trumpeted the success of NAFTA, showing how it led to greater prosperity for Mexico. They used a mistaken analysis to get this result, which the Bank has refused to correct to this day.

This is what the opponents of the TPP can expect to encounter. All the rules of objectivity that the media claim to respect will be thrown in the dustbin. The same applies to any norms of professional integrity in economics.

Big money is at stake here and the big boys intend to get a win with TPP. Logic, numbers, and evidence face an uphill battle.

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He is a regular Truthout columnist and a member of Truthout’s Board of Advisers.

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About Dean Baker

Dean Baker is an American economist whose books have been published by the University of Chicago Press, MIT Press, and Cambridge University Press. He is co-director of the Center for Economic and Policy Research (CEPR).